UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-15888
IGENE Biotechnology, Inc.
(Exact name of small business issuer in its charter)
Maryland 52-1230461
(State of other jurisdiction of (I.R.S. Employer Identification
No.)
incorporation or organization)
9110 Red Branch Road Columbia, Maryland
21045
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code: (410) 997-2599
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock (par value $.01 per share)
(Title of each class)
Check whether the issuer (1) has filed all reports required to be
filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such
shorter period that the registrant was required to file such
reports), and (2)
has been subject to such filing requirements for the past 90
days.
YES X NO
Check if there is no disclosure of delinquent filers in response
to Item 405 of
Regulation S-B contained in this form, and no disclosure will be
contained, to
the best of registrant's knowledge, in definitive proxy or
information
statements incorporated by reference in Part III of this Form 10-
KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's total revenues for its most recent fiscal year were
$66,573.
As of March 1, 1997, there were 18,631,139 shares of the issuer's
Common Stock
and 223,342 shares of the issuer's 8% Cumulative Convertible
Preferred Stock,
Series A, outstanding. The aggregate market value of the Common
Stock and
Preferred Stock held by non-affiliates was $4,055,760, based on
the last bid
quotation prices of the Common Stock as reported by the National
Association of
Securities Dealers pink sheets on such date and, with respect to
the Preferred
Stock for which no quotations were available, based on the
conversion rate
applicable to the Preferred Stock and the last bid price of the
Common Stock as
reported above. (The officers and directors of the issuer are
considered
affiliates only for purposes of this calculation.)
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
IGENE Biotechnology, Inc. ("The Company") is engaged in the
business of
industrial microbiology and related biotechnologies. The Company
was formed on
October 27, 1981 to develop, produce and market value-added
specialty
biochemical products derived from abundant, inexpensive and
renewable
agricultural residues and wastes through the use of state-of-the-
art
fermentation technology, physical and chemical separation
technology, and
related chemical and biochemical engineering technologies.
The Company has devoted its resources to the development of
proprietary
processes to convert selected agricultural
raw materials or feedstocks into commercially useful and cost
effective
specialty biochemical products for the food, feed,
flavor and agrichemical industries. In developing these
processes and products,
the Company has relied on the expertise
and skills of its in-house scientific staff and, for special
projects, various
consultants.
The Company has no manufacturing facilities other than its pilot
plant facility
in Columbia, Maryland. To date,the Company has either licensed
its products to
third-party manufacturers or joint venture partners.
Government Regulation
The manufacturing and marketing of most of the products the
Company has
developed are and will likely continue to be subject to
regulation by various
governmental agencies in the United States, including the Food
and Drug
Administration ("FDA"), the Department of Agriculture ("USDA"),
and the
Environmental Protection Agency ("EPA"), and comparable agencies
in other
countries. Substantially all of the food products developed by
the Company to
date have been reviewed by a panel of independent scientific
experts (the
"Product Review Panel") who are qualified by scientific training
and experience
to evaluate, among other things, the safety of ingredients
intended to be used
directly or indirectly in foods. The Product Review Panel has
advised the
Company that it considers such products to be Generally
Recognized As Safe
("GRAS") under the regulations of the FDA. The Company is not
aware of any
action by the FDA, the USDA or the EPA contesting these
affirmations or of any
basis for their doing so. There can be no assurance, however,
that the FDA, the
USDA or the EPA will accept such independent expert evaluations
and that the
Company will not be required to obtain costly and time-consuming
approvals from
these agencies or comparable agencies in foreign countries. The
Company, as a
matter of policy, requires that its products conform to current
Good
Manufacturing Practices (as defined under the Federal Food, Drug
and Cosmetic
Act and the rules and regulations thereunder) and the Company
believes all of
its products so conform. The extent of any adverse governmental
regulation that
might arise from future administrative or legislative action,
including current
rules and regulations pertaining to the process of GRAS
affirmations, cannot be
predicted.
Research and Development
As of December 31, 1996, the Company had expended approximately
$10,200,000 on
research and development since its inception on October 27, 1981
and has, as of
December 31, 1996, received revenues from product sales of
approximately
$1,781,000 from the proprietary processes resulting from such
research and
development, excluding one-time license fees received in 1982 and
1985. The
Company will continue to incur research and development costs in
connection with
improvements in its existing processes and products, but it does
not anticipate
development of new processes and products in 1997.
The Company's research and development activities have resulted
in the
development of processes to produce the products hereinafter
discussed.
Commercial Products
1. AstaXin(r)
AstaXin(r) is the Company's tradename for its dried yeast product
made from a
proprietary microorganism developed by the Company. AstaXin(r)
is a natural
source of astaxanthin, a pigment which imparts the characteristic
red color to
the flesh of salmon, trout, and prawns. In the ocean, salmon and
trout obtain
astaxanthin from krill and other planktonic crustaceans in their
diet. A
crustacean diet would be prohibitively expensive for farm raised
salmonids;
without the addition of astaxanthin, the flesh of such fish is a
pale, off-white
color which is less appealing to consumers expecting "salmon-
colored" fish.
Efficacy of AstaXin(r) has been demonstrated by fish feeding
trials in Europe,
Asia, and North and South America. An estimated 285,000 metric
tons of farm
raised salmon are produced annually worldwide.
Prior to 1995 the Company entered into a number of manufacturing
and licensing
agreements for commercial quantities of AstaXin(r). In the
initial trials the
manufacturing process was successfully scaled-up to 50,000-gallon
fermentors.
However, for a number of reasons, outside of the Company's
control, none of
these agreements were extended beyond the initial trial periods.
In 1995 the Company signed a nonexclusive licensing Agreement
with Archer
Daniels Midland Company for the manufacturing and sale of
AstaXin(r). The
Agreement provided for an initial payment and royalties based on
sales. On
February 29, 1996 Archer Daniels Midland Company informed IGENE
that it would no
longer use IGENE's astaxanthin technology and terminated the
licensing
agreement.
In 1996, the Company began commercial fermentation trials with
another potential
manufacturing partner. However, a formal Manufacturing Agreement
has not been
executed. The Company is continuing to contact other potential
manufacturers for
the product.
2. Crustacean Shell Products
ClandoSan(r) is the Company's registered trademark for its
natural nematicide
made from crab and crawfish exoskeletons and processed into
pellets or granules
by patented and patent pending technology developed by the
Company.
The product acts in soils as a biological control agent by
stimulating the
growth of normal soil microorganisms, which
produce chitinase, and other enzymes that degrade chitin present
in the cuticles
and eggs of plant-pathogenic nematodes.
It has secondary effects as a slow release organic fertilizer.
ClandoSan(r)
does not have a direct adverse effect on plant-
pathogenic nematodes either in vitro or in sterilized or
irradiated soils and
only acts indirectly to suppress nematode
populations in soils. The product generally is not water-soluble
and,
consequently, does not contribute to ground water contamination.
On March 17, 1988, ClandoSan(r) was registered by the EPA for use
with all
agricultural and horticultural crops in accordance with the
Federal Insecticide,
Fungicide, and Rodenticide Act ("FIFRA") section 3(c)(5).
ClandoSan(r) is now
registered in 49 states and is produced at one contract
manufacturing facility
in the United States.
3. Whey-Based Products
(a) MacroMin(r) and MinraLac(r)
MacroMin(r) and MinraLac(r) are the Company's registered trade
names for
coproducts it developed for converting low economic value cheese
whey into
economically and biologically useful products for the food
industry. In spite
of extensive sales efforts throughout 1989, the Company was not
able to develop
a market for these products and they were phased out in 1990.
(b) Weyco-Serv(r)
Weyco-Serv(r) (or NaturServ(r)) is the Company's trade name for a
fermented
whey-based product containing calcium propionate and calcium
acetate that can be
used as a food preservative and mold inhibitor in the baked goods
industry, in
condiments, and in other foods and beverages. The product is
produced by
fermenting modified cheese whey residues using a patented
microbial co-culture
and fermentation process developed by the Company.
A license to manufacture and sell Weyco-Serv(r) was granted by
the Company to
Hercules Incorporated ("Hercules"), Wilmington, Delaware, in
exchange for an
initial license fee of $500,000, pursuant to a license agreement
dated as of
September 16, 1985. Hercules had not produced commercially any
quantities of
Weyco-Serv(r) and by an agreement dated October 15, 1987, the
Company and
Hercules terminated the license agreement.
The termination arrangement provided that the Company pay
Hercules $25,000 for
termination of the license. If
the Company commercializes Weyco-Serv(r), the Company will pay
Hercules up to an
additional $600,000 from revenues
from the sale or licensing of the product.
The Company continues to be interested in licensing the Weyco-
Serv(r)
technology.
4. Diagnostic Reagents
The Company has developed a number of enzymes that are suitable
as reagents for
clinical diagnostic applications.
Two such microorganisms and fermentation processes yield high
concentrations of
stabilized enzymes that can be used for
the isolation of strain-specific cell wall components in rapid
diagnostic tests
for streptococcal diseases. The Company has
been granted a patent for industrial production of a lytic enzyme
specific for
Group A Streptococcus. To date, the Company
has produced only small commercial quantities of these enzymes
and continues to
be interested in manufacturing and
marketing these enzymes for use in diagnostic test kits.
5. Flavors and Fragrances
The Company has developed natural flavor and fragrance chemicals
by fermentation
of whey and other carbohydrates. Patent applications on the
proprietary
microorganisms developed by the Company have been submitted in
Europe and in the
United States.
The fermentation processes yield a range of water-soluble low
molecular weight
organic (carboxylic) acids which
can be converted with naturally occurring alcohols into esters
which are
commercially useful both as food flavors and as
fragrances in cosmetic and toiletry products.
The Company has also developed a fermentation process for the
production of
Poly-LevuLan(tm), its trademark for a high molecular weight
fructose polymer,
which can be used as a flavor carrier or as a foam stabilizer and
thickener in
food and cosmetic applications.
The Company is continuing to seek opportunities to commercialize
its
flavors/fragrances technology.
Patents and Trademarks
It is the Company's policy to protect its intellectual property
rights by a
variety of means, including applying for
patents and trademarks in the United States and in other
countries. The Company
also relies upon trade secrets and
improvements, unpatented proprietary know-how and continuing
technological
innovation to develop and maintain its
competitive position. In this regard, the Company places
restrictions in its
agreements with third parties with respect to the use and
disclosure of any of
its proprietary technology. The Company also has internal
nondisclosure
safeguards, including
confidentiality agreements with employees and consultants.
During fiscal years 1994, 1995, and 1996, as part of the
Company's stringent
cost containment efforts, all patents
and trademarks were carefully reviewed and those with no
foreseeable commercial
value have been abandoned to eliminate
costly maintenance fees. Patents (and applications) and/or
trademarks on
technology with recognized commercial value
include those for AstaXin(r), ClandoSan(r), Weyco-Serv(r), and
streptococcus
lytic enzyme. Extensive additional foreign
applications for AstaXin(r) have been submitted.
Competition
Competitors in the biotechnology field in the United States and
elsewhere are
numerous and include major chemical, pharmaceutical and food
companies, as well
as specialized biotechnology companies. Competition can be
expected to increase
as small biotechnology companies continue to be purchased by
major multinational
corporations with their huge resources. Competition is also
expected to
increase with the introduction of more diverse products developed
by
biotechnology firms, increasing research cooperation among
academic institutions
and large corporations, and continued government funding of
research and
development activities in the biotechnology field, both in the
United States and
overseas. Unlike the majority of biotechnology companies, which
are developing
products principally for the pharmaceutical industry,
the Company has focused its own activities on the development of
proprietary
products for use in food, fermentation and
agricultural industries. In the future, however, competitors may
offer
products, which, by reason of price or efficacy or more
adequate resources for technology advances, may be superior to
the Company's
existing or future products.
In addition, the aquaculture market into which the Company's
product,
AstaXin(r), will be sold is a highly competitive industry
worldwide and certain
large companies are presently known to be developing and
marketing competitive
products.
Employees
At December 31, 1996, the Company had 8 employees, three of who
are in
administration and marketing, while the remainder is engaged in
process
development and support of manufacturing activities.
None of the Company's employees is represented by a labor union
and the Company
has experienced no work stoppages. The Company believes its
relations with its
employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 8,480 square feet of space in the Oakland
Ridge Industrial
Park located at 9110 Red Branch Road, Columbia, Maryland. The
Company occupies
the space under a lease, which expiring on January 31, 1996 with
an approximate
rental expense of $68,000 for 1996. In late 1995 the Company
signed a five-year
lease expiring on January 31, 2001. Approximate rental expense
is $73,000 for
each remaining year of the lease expiring on January 31, 2001.
Approximately 2,000 square feet of the space occupied by the
Company is used for
executive and administrative
offices and approximately 2,300 feet is used for research and
development
activities. Approximately 4,000 square feet of
space is used for the Company's intermediate-stage or scale-up
pilot plant
facility.
In addition, the Company has a 180 square-foot Biosafety Level 2
Laboratory
suitable for manufacturing bacterialenzymes for in vitro
diagnostic kits.
The Company owns all equipment necessary for its current
operations and all
equipment is in satisfactory condition.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's
security holders
during the fourth quarter of the fiscal
year ended December 31, 1996.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Preferred Stock
Prices for the Preferred Stock were quoted on the over-the-
counter market on the
National Association of Securities
Dealers, Inc., Automated Quotation System ("NASDAQ") from
November 25, 1987
through January 25, 1988. Prior to
November 25, 1987 there was no public market for the Preferred
Stock and since
January 25, 1988, no quotations for the
Preferred Stock have been reported on NASDAQ. The aggregate
number of record
holders of Preferred Stock as of March
1, 1997 was 17.
Common Stock
The Common Stock has been traded in the over-the-counter market
since July 23,
1986. Prior to July 23, 1986, there was no public market for the
Common Stock.
On or about June 9, 1989, the Company was advised by NASDAQ that
its capital and
surplus (exclusive of Redeemable Preferred Stock), based on its
financial
statements at and for the quarter ended March 31, 1989, did not
meet
requirements for continued inclusion in the NASDAQ System.
Accordingly, the
quotation of Common Stock in the NASDAQ System was terminated.
Commencing on or about June 12, 1989, the Company's Common Stock
began trading
on the over-the-counter market on a limited basis and is quoted
in the national
bureau's "Pink Sheets". The following table shows, by calendar
quarter, the
range of representative bid prices for the Common Stock for 1995
and 1996.
<TABLE>
<CAPTION>
Calendar Quarter High Low
<S> <C> <C>
1995: First Quarter $ .13 $ .06
Second Quarter $ .31 $ .02
Third Quarter $ .13 $ .02
Fourth Quarter $ .13 $ .01
1996: First Quarter $ .16 $ .03
Second Quarter $ .14 $ .04
Third Quarter $ .16 $ .11
Fourth Quarter $ .12 $ .07
Management obtained the above information from the National
Quotation Bureau.
Such quotations are inter-dealer
quotations without retail mark-up, mark-downs, or commissions,
and may not
represent actual transactions. The above
quotations do not reflect the "asking price" quotations of the
stock.
The aggregate number of record holders of the Common Stock as of
March 3, 1997
was 254. As of March 3, 1997, the high bid and low offer prices
for the Common
Stock, as shown in the "pink sheets" were $0.10 and $0.12,
respectively.
</TABLE>
<PAGE>
Warrants
On or about February 15, 1991, the Company issued Warrants to
purchase an
aggregate of 800,000 shares of Common Stock to Kimelman & Baird,
LLC, an
employee of the same and Anthony B. Low-Beer, exercisable at $.25
per share
until February 14, 1995. The Warrants were issued to the
aforementioned for
acting as placement agent in the Company's private placement of
$1,149,000 in
gross proceeds, which closed February 15, 1991, and there are
substantial
restrictions against the transfer of these Warrants. The
Warrants were not
publicly traded and there were no trades of these Warrants before
the expiration
date.
On or about June 26, 1992, the Company issued Warrants to
purchase an aggregate
of 252,400 shares of Common
Stock to Kimelman & Baird, LLC, at $.75 per share until June 26,
1996. The
Warrants were issued to the aforementioned
for acting as placement agent in the Company's private placement
of $510,500 in
gross proceeds, which closed June 26,
1992, and there are substantial restrictions against the transfer
of these
Warrants. In addition, 680,667 warrants to purchase
common stock at $.75 per share were issued to other qualified
investors as part
of the private placement. These warrants
expired June 26, 1996. These Warrants were not publicly traded
and there were
no trades of these Warrants before the
expiration date.
On December 14, 1995 stockholders of the Company approved the
cancellation of
certain promissory notes of the
Company in favor of those directors who made loans to the Company
on various
dates from August 25, 1993 through March
7, 1995 for an aggregate amount of $536,300, and to issue common
stock and
warrants to purchase the same number of
shares as common stock at the per share price of $.125, which
warrants shall
expire on April 3, 1998.
The aggregate number of record holders of all Warrants as of
March 3, 1997 was
41.
Dividend Policy
When and if funds are legally available for such payment under
statutory
restrictions, the Company may pay annual
cumulative dividends on the Preferred Stock of $.64 per share on
a quarterly
basis. During 1988 the Company declared and
paid a cash dividend of $.16 per share. In December 1988, the
Company suspended
payment of the quarterly dividend of
$.16 per share of Preferred Stock. No dividends have been
declared or paid
since 1988. Any resumption of dividend
payments on Preferred Stock would require significant improvement
in cash flow.
Preferred Stock dividends are payable
when and if declared by the Company's board. Unpaid dividends
accumulate for
future payment or addition to the liquidation
preference and redemption price of the Preferred Stock. As of
December 31, 1996
the total amount of dividends in arrears
with respect to the Company's Preferred Stock was $1,179,246.
Dividends on Common Stock are currently prohibited because of the
preferential
rights of holders of Preferred Stock. The Company has paid no
cash dividends on
its Common Stock in the past and does not intend to declare or
pay any dividends
on its Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
1996 Compared with 1995
Sales revenue for the year ended December 31, 1996 increased from
$25,563 in
1995 to $43,091 in 1996. The increase in overall sales revenues
(68%) resulted
from an increase in domestic sales of ClandoSan(r). The Company
hopes to find a
licensee for ClandoSan(r) in 1997 as it continues to focus its
efforts on its
AstaXin(r) product. Long-term production and sales of AstaXin(r)
will depend on
the Company's ability to find suitable manufacturing partners
since it has no
commercial scale manufacturing facilities of its own. No
commercial quantities
of AstaXin(r) were available for sale in 1996. In May 1995 the
Company executed
a non-exclusive technology licensing and royalty agreement with
Archer Daniels
Midland Co. However, on February 29, 1996 Archer Daniels Midland
informed the
Company that it would no longer utilize the technology and
terminated the
agreement. The Company is in discussion with other potential
<PAGE>
manufacturers for AstaXin(r) and, in addition, is seeking
additional investment
to enable it to purchase or lease a manufacturing facility of its
own.
Additional sales of ClandoSan(r) will depend on continued
marketing arrangements
with distributors for the product. The Company expects to
continue its own
limited sale of these products until a suitable licensee is found
and a
Licensing Agreement formalized.
Cost of product sales as a percentage of product sales decreased
to 54% in 1996
from 66% in 1995 and can be attributed in part to decreased
freight charges
incurred by the Company.
Research, development and pilot plant expenses decreased
approximately 11% for
the current year. This decrease
was attributed to reduced payroll expenses resulting from a
vacant position in
the research department and reduced
equipment repair expenses. Research and development costs may be
expected to
increase gradually in support of increased
manufacturing efforts for AstaXin(r), but would be offset by
technology
licensing and technology services income.
Marketing, general and administrative expenses increased 6% in
1996 when
compared to the expenses in 1995.
Marketing expenses related to the Company's AstaXin(r) product
could be expected
to increase if production and sale of
AstaXin(r) proceeds, but this will depend on marketing
arrangements with
distributors of the product. This increase would be offset by
sales income or
from licensing additional technology. General and administrative
expenses could
be expected to rise to reflect increasing costs of maintaining
and enforcing the
Company's patents and patent applications for AstaXin(r) and
ClandoSan(r)
worldwide, but only if commercial quantities of the products are
manufactured.
Interest expense for the year ended December 31, 1996 increased
by approximately
$40,600 over the prior year. This increase reflects the increase
in accumulating
interest due on additional promissory notes issued to certain
directors of the
Company, and an addition to the increase in the interest rate
being charged on
the variable rate subordinate debenture from 8% to 12% effective
October 1,
1996.
In 1995, the Company's operational costs were offset by aggregate
payments
totaling $249,215, which are part of a Licensing Agreement for
AstaXin(r), which
was terminated on February 29, 1996.
As a result of the foregoing, the Company reported a net loss of
$776,873, or
$.04 per common share in 1996, compared to a net loss of
$503,156, or $.04 per
common share in 1995. The weighted average number of common
shares outstanding
increased to 18,604,171 in 1996 from 13,694,343 in 1995. This
increase in
shares in 1996 reflects the annual issuance of common stock as
payment of
interest on a variable note subordinated debenture, the
conversion of 2,500
shares of the Company's redeemable preferred stock into 5,000
shares of common
stock on January 23, 1996, and the issuance of 4,290,000 shares
of common
stock to certain directors of the Company in lieu of retired
Promissory Notes
and Warrants issued from August 25, 1993 through March 7, 1995.
Financial Position
In December 1988, as part of an overall effort to contain costs
and conserve
working capital, the Company suspended payment of the quarterly
dividend on its
Preferred Stock. Resumption of the dividend will require
significant
improvements in cash flow. Unpaid dividends cumulate for future
payment or
addition to the liquidation preference or redemption value of the
Preferred
Stock. As of December 31, 1996, total dividends in arrears on
the Company's
Preferred Stock was $1,179,246 of which $189,246 ($5.28 per
share) was included
in the carrying value of the redeemable Preferred Stock and
$990,000 ($5.28 per
share) was included in the liquidation preference of the
Preferred Stock.
<PAGE>
Liquidity and Capital Resources.
Historically, the Company has been funded primarily by equity
contributions,
loans from stockholders and license fees. As of December 31,
1996 the Company
had a working capital deficit of $983,816, and cash and cash
equivalents of
$41,339.
The Company Company continues to follow a plan designed to reduce
expenses and
conserve working capital. This plan included the reduction in
staff as well as
reductions in all areas of the Company's selling, research,
general and
administrative expenses and refocusing of research and
development activities
solely on the Company's AstaXin(r) product. These budgeted
expenditures provided
for minimizing capital expenditures for the Company's pilot plant
facility in
Columbia, Maryland or for any new manufacturing facilities.
Cash used by operations in 1996 and 1995 amounted to $610,842
and $340,904,
respectively. IGENE continues to focus on research and
development of its
products, achieving only minimal sales of its ClandoSan(r) and
AstaXin(r)
products. IGENE was able to reduce the amount of cash required
to fund 1995
operations through a Licensing Agreement for AstaXin(r) with
Archer Daniels
Midland Co. ("ADM"), Decatur, Illinois, signed in May 1995. That
Agreement
provided for a cash payment of $200,000 at signing and a royalty
based on sales.
In addition, the Company had received $24,415 from ADM for
technology services
related to the Agreement. On December 4, 1995, the Company also
received a
payment of $25,000 from ADM as stipulated in the Licensing During
1996 the
Company received $23,482 for technology services related to the
agreement. On
February 29, 1996, ADM terminated its Licensing Agreement with
the Company.
Cash used in investing activities (capital expenditures)
decreased to $955 in
1996 from $2,369 in 1995. IGENE
believes its existing equipment is substantially sufficient to
meet its needs in
continuing its research and development
activities in the foreseeable future. No equipment was sold in
1995 or 1996.
Following is a detail of the Company's financing activities for
1996:
On February 9, 1996 and March 11, 1996, the Company issued
Promissory Notes to
certain Directors of the Company for an aggregate consideration
of $140,000.
These notes specify that at any time prior to repayment the
holder has the right
to convert the note to common stock of the Company at $.10 per
share for the
note issued February 9, 1996 and at $.09 per share for the note
issued March 11,
1996, and to receive warrants for an equivalent number of common
shares at $.10
per share for the note issued February 9, 1996 and at $.09 per
share for the
note issued March 11, 1996.
On April 23, 1996, May 9, 1996 and June 7, 1996, the Company
issued Promissory
Notes to certain Directors of
the Company for an aggregate consideration of $177,000. These
notes specify
that at any time prior to repayment the holder
has the right to convert the note to common stock of the Company
at $.06 per
share for the notes issued April 23, 1996 and
May 9, 1996, and at $.05 for the note issued June 7, 1996, and to
receive
warrants for an equivalent number of common
shares at $.06 per share for the notes issued April 23, 1996 and
May 9, 1996 and
at $.05 per share for the note issued June
7, 1996.
On July 24, 1996 and September 24, 1996, the Company issued
Promissory Notes to
certain Directors of the
Company for an aggregate consideration of $160,000. These notes
specify that at
any time prior to repayment the holder
has the right to convert the note to common stock of the Company
at $.115 per
share for the note issued July 24, 1996 and
at $.125 per share for the note issued September 24, 1996, and to
receive
warrants for an equivalent number of common
shares at $.115 per share for the note issued July 24, 1996 and
$.125 per share
for the note issued September 24, 1996.
On November 13, 1996 and December 11, 1996, the Company issued
Promissory Notes
to certain Directors of the Company for an aggregate
consideration of $140,000.
These notes specify that at any time prior to repayment the
holder has the right
to convert the note to common stock of the Company at $.09 per
share for the
notes dated November 13, 1996 and December 11, 1996, and to
receive warrants for
an equivalent number of common shares at $.09 per share for the
note issued
November 13, 1996 and December 11, 1996.
<PAGE>
To continue operations short term, the Company will consider
issuing additional
stock and debt to officers and directors and encouraging holders
of outstanding
warrants to exercise these rights. To increase its working
capital position the
Company will also encourage the holders of promissory notes to
convert them into
common stock. To meet short-term cash needs the Company plans to
issue
additional notes to certain directors in January of 1997.
In the long-term, the Company is also continuing its development
of additional
AstaXin(r) technology which it plans
to license and market and which it hopes will benefit future
periods.
The Company does not believe that inflation has had a significant
impact on the
Company's operations during the past three years.
ITEM 7. FINANCIAL STATEMENTS
The financial statements appear after Part IV of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL
PERSONS, AND KEY
EMPLOYEES
The Company's directors are elected annually by the shareholders
of the Company.
The directors, executive officers and key
employees of the Company are as follows:
Name Age Position with IGENE
Michael G. Kimelman 58 Chairman of the Board of
Directors
Thomas L. Kempner 69 Vice Chairman of the
Board of Directors
Stephen F. Hiu 40 Director, President,
Secretary, Acting
Treasurer, and Director
of Research and Development
Dexter W. Gaston * 51 Chief Executive Officer
Patrick F. Monahan 46 Director, and Director of
Manufacturing
Joseph C. Abeles 82 Director
John A. Cenerazzo 73 Director
Sidney R. Knafel 66 Director
* Mr. Gaston's contract as CEO was not renewed after January 7,
1997.
MICHAEL G. KIMELMAN was elected a Director of the Company in
February 1991 and
Chairman of the Board of Directors in March 1991. He is the
Managing Partner of
Kimelman & Baird, LLC. He is a founder of Blue Chip Farms, a
standardbred
horse-breeding farm, and has been an officer of the same since
its inception in
1968. Mr. Kimelman is currently a Director of the Harness Horse
Breeders of New
York State and serves on the Board of the Hambletonian Society.
THOMAS L. KEMPNER is Vice Chairman of the Board of Directors and
has been a
Director of the Company since its inception in October 1981. He
is and has been
Chairman and Chief Executive Officer of Loeb Partners
Corporation, investment
bankers, New York, and its predecessors since February 1978. He
is currently a
Director of Alcide Corporation, Arlen Corp., CCC Information
Services, Inc.,
Energy Research Corp., Intermagnetics General Corp., Northwest
Airlines, Inc.,
and Roper Starch Worldwide, Inc.
STEPHEN F. HIU was appointed President and Treasurer in March
1991, Secretary in
July 1990, and elected a Director in August
1990. He has been Director of Research and Development since
January 1989 and,
prior thereto, was Senior Scientist since
December 1985, when he joined the Company. He was a post-
doctoral Research
Associate at the Virginia Polytechnic Institute and State
University,
Blacksburg, Virginia, from January 1984 until December 1985. Dr.
Hiu holds a
Ph.D. degree in microbiology from Oregon State University and a
B.S. degree in
biological sciences from the University of California, Irvine.
<PAGE>
DEXTER W. GASTON was appointed Chief Executive Officer on January
11, 1996.
Prior positions include CEO of Microbio Resources, Managing
Director of Algatec,
CEO and Chairman of Reclaimex and Director of Technical
Operations, Revlon
Health Care. He is also a Director of the California Wine
Company. He holds a
B.S. in chemistry from Rutgers University and a M.B.A. from the
University of
Chicago.
PATRICK F. MONAHAN was appointed Director of Manufacturing and
elected a
Director of the Company in April 1991 and has managed the
Company's fermentation
pilot plant since 1982. Prior thereto, he was a technical
specialist in the
fermentation pilot plant of W.R. Grace and Co. from 1975 to 1982.
He received
an Associate in Arts degree in biology from Allegheny Community
College and a
B.S. degree in biology with a minor in Chemistry from Frostburg
State College,
Frostburg, Maryland.
JOSEPH C. ABELES, private investor, was elected Director of the
Company on
February 28, 1991. Mr. Abeles serves as Director of
Intermagnetics General
Corporation, Bluegreen Corporation, Peridot Holdings, Inc. and
Ultralife
Batteries, Inc.
JOHN A. CENERAZZO was Chairman of the Board from November 1989 to
April 1991.
He served as President of the Company from August 1988 through
September 1989
and has been a Director since September 1987. He is a Director
Emeritus of
National Penn Bank Shares, Inc. of Boyertown, Pennsylvania and a
Director
Emeritus of National Penn Bank, a Director of U.S. Axle
Corporation, and a
Chairman and a Director of InfoCore, Incorporated.
SIDNEY R. KNAFEL, a Director of the Company since 1982, has been
Managing
Partner of SRK Management Company, a private investment concern,
New York, since
1981, Chairman of Insight ommunications, Inc. since 1985, and of
BioReliance
Corporation since 1982. Mr. Knafel is also currently a Director
of Cellular
Communications International, Inc., CoreComm Incorporated,
General American
Investors Company, Inc., and NTL Incorporated.
Compliance with Section 16(a) of the Exchange Act
Forms 3 and 4 were filed by the Company in a timely manner in
accordance with
Section 16(a) of the Securities Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION
During 1996 no executive officer's annual cash compensation
exceeded $100,000.
Other than the 1986 Stock Option Plan described below, the
Company has no profit
sharing or incentive compensation.
Stock Option Plan
The 1986 Stock Option Plan (the "Plan"), which was approved by
the stockholders
on May 5, 1987 and amended on June 12, 1989, August 8, 1990,
March 17, 1994, and
December 14, 1995, provides for the issuance of options to
acquire up to
2,000,000 shares of Common Stock of the Company.
The Plan is administered by a committee appointed by the
Company's Board of
Directors (the "Committee"). The
Board of Directors may administer the Plan itself in the absence
of an appointed
Committee, or by vote of a majority of the
members of the Board of Directors if a Committee is not in
existence.
<PAGE>
The purpose of the Plan is to promote the long-term success of
the Company by
providing an incentive to directors
and employees providing services to the Company and by
encouraging such
individuals to acquire a proprietary interest in
the Company. Any employee, officer or director of the Company
who is determined
by the Committee to be a "Key
Employee" is eligible to receive options under the Plan. The
term of each
option granted under the Plan will be for such
period as the Committee may determine, but in no event to exceed
10 years from
the grant of such option. With respect to
options granted, the option price may be greater than, less than
or equal to,
the fair market value of the Company's Common
Stock at the time the option is granted, as determined in the
discretion of the
Committee. The Company may, in conjunction
with the grant of options under the Plan, grant bonuses to
optionees to assist
them in the payment of income tax liabilities
incurred upon the exercise of options, and may make or guarantee
loans to
optionees to assist them in the exercise of options.
No options can be granted by the Committee under the Plan on or
after January
22, 1997. The Committee may modify,
extend or renew outstanding options granted under the Plan, or
accept the
surrender of outstanding options, to the extent not
previously exercised.
Options are exercisable in annual installments, in such manner as
the Committee
may determine. Options may be exercised by payment in full of
the option price
in cash, by tender of shares of the Company's Common Stock having
a total fair
market value on the date of exercise equal to the option price
(subject to
certain limitations) or in such other consideration as may be
approved by the
Committee. The Committee has the power to condition the exercise
of any option
granted under the Plan on the continued employment by the Company
of the Key
Employee at the time of exercise or on the attainment of
specified performance
goals by the Key Employee or by the Company.
In the event of a reclassification, recapitalization, stock
exchange, stock
split, stock dividend or other similar event
affecting the Company's Common Stock, the number and class of
shares under
previously granted options and the option
price payable upon exercise of such options will be appropriately
adjusted by
the Committee to reflect the change in such
manner as the Committee may determine. In the event of a
proposed merger,
consolidation, share exchange or similar
transaction to which the Company would be a party, or in the case
of a tender
offer for the Company's stock, the Committee
or the Board of Directors may take such action as may be
appropriate to protect
the holders of options and to effectuate the purpose of the Plan.
The Board of Directors may terminate, suspend or amend the Plan
at any time,
without the approval of the Company's stockholders.
Stockholders' approval is
required to amend the Plan to (i) increase the aggregate number
of shares
subject thereto, (ii) change the provisions for establishing the
option price,
(iii) permit options to be exercisable after the period ending on
the tenth
anniversary date of the grant of the option, (iv) extend the term
of the Plan,
(v) materially modify the requirements as to eligibility for
participation in
the Plan or (vi) materially increase the benefits accruing to
participants under
the Plan.
In 1989 the Company took action to replace outstanding options
for the purchase
of 64,000 shares at $5.40 per share
with options to purchase 64,000 shares at $1.00 per share, but
otherwise having
the same terms as the options replaced.
Currently, there are a total of 7 persons eligible to participate
in the Plan.
Options to acquire 1,742,750 shares of Common Stock of the
Company have been
issued and 257,250 shares of
Common Stock are outstanding under the Plan. Options for 107,000
shares of
Common Stock were exercised in fiscal 1993.
No options were exercised in fiscal years 1994, 1995, or 1996.
The following table sets forth information as to all incentive
and non-statutory
stock options that have been granted
to the executive officers of the Company. No options were
exercised by any
officers during 1996. The following table
provides information regarding the number of shares covered by
both exercisable
and unexercisable stock options for
executive officers as of December 31, 1996 and the values of "in-
the-money"
options as of that date. An option is "in-the-
money" if the per share fair market value of the underlying stock
exceeds the
option exercise price per share.
<PAGE>
<TABLE>
<CAPTION>
Aggregate Fiscal Year End Option Values
Number of
Unexercised Dollar Value of
Options In-The-Money
Number At End of Options At End
Of Shares Dollar Fiscal Year of Fiscal Year1
Acquired Value
Name On Exercise Realized Exercisable/ Exercisable/
Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Stephen F. Hiu
------ ------- 581,667/373,333 23,368/14,933
Patrick F. Monahan
------ ------- 412,500/230,000 16,500/9,200
1. The value of unexercised in-the-money options at December
31, 1996 is
based on the difference between $.09 per
share and the per share option exercise price, multiplied by the
number of
shares of common stock underlying such
option.
</TABLE>
Compensation of Directors
During 1996, Directors were not compensated for their Board or
Committee
activities.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of March 1, 1997
with respect to
beneficial ownership of shares of the
Company's outstanding Common Stock and Preferred Stock by (i)
each person known
to the Company to own more than five percent of its Common Stock
or Preferred
Stock, (ii) each Director, and (iii) all Directors and Officers
as a group.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Number of Number
Name and Address Shares Percent Shares Percent
<S> <C> <C> <C> <C>
Joseph C. Abeles 8,568,4251 19.30 ----- -----
c/o Abel Associates
220 E. 42nd Street
New York, NY 10017
John A. Cenerazzo 1,155,2002 2.60 ----- -----
Stokesay Castle Lane
Reading, PA 19606
Stephen F. Hiu 788,8333 1.78 ----- -----
9110 Red Branch Road
Columbia, MD 21045
Thomas L. Kempner 9,858,1914 22.21 ----- -----
c/o Loeb Partners Corporation
61 Broadway
New York, NY 10006
Michael G. Kimelman 2,705,5255 6.09 ----- -----
c/o Kimelman & Baird, LLC
100 Park Avenue, Suite 1105
New York, NY 10017
Sidney R. Knafel 8,364,9266 18.85 ----- -----
c/o SRK Management
126 East 56th Street
New York, NY 10022
Patrick F. Monahan 544,5007 1.22 ----- -----
9110 Red Branch Road
Columbia, MD 21045
All Directors and
Officers 31,985,6008 72.06 ----- -----
as a Group (7 persons)
Dow Chemical Company 535,0029 1.2 187,500 100.0%
All Shareholders 44,385,69110 100.0 187,500 100.0%
1 Includes the following: 2,109,404 shares and warrants for
991,344 shares
held by Mr. Abeles, 2,724,393 shares and
warrants for 2,724,393 shares subject to the conversion of
$204,345 of
promissory notes held by Mr. Abeles, 4,140
shares held by Mr. Abeles' wife, 2,250 shares subject to the
redemption of 1,125
shares of redeemable preferred
stock held by Mr. Abeles, and 12,500 shares subject to the
redemption of 6,250
shares of redeemable preferred stock
owned by Mr. Abeles' wife. Mr. Abeles disclaims beneficial
ownership of the
shares held in a trust for which he
is the trustee and the shares held by his wife.
<PAGE>
2 Includes 283,458 shares and warrants for 131,192 shares held
by Mr.
Cenerazzo, 32,750 shares which are subject
to options currently exercisable or exercisable within 60 days,
and includes 414
shares held by Mr. Cenerazzo's wife.
Also includes 353,693 shares and warrants for an additional
353,693 shares
subject to the conversion of $26,529
of promissory notes held by Mr. Cenerazzo.
3 Includes 500 shares held by Dr. Hiu and 788,333 shares which
are subject
to options currently exercisable, or
exercisable within sixty days.
4 Includes 386,972 shares and warrants for 212,960 shares held
by Mr.
Kempner; 94,000 shares held by a trust under
which Mr. Kempner is one of two trustees and the sole
beneficiary; 1,482,987
shares and warrants for 931,744
shares held by a trust under which Mr. Kempner is one of two
trustees and a one-
third beneficiary; 182,526 shares
held by his wife; and 257,880 shares held by trusts under which
Mr. Kempner is
one of two trustees with his brothers
as beneficiaries. Also includes 3,154,561 shares and warrants
for an additional
3,154,561 shares subject to the
conversion of $236,610 of promissory notes held by Mr. Kempner or
various trusts
under which Mr. Kempner is
one of two trustees and a direct or indirect beneficiary. Mr.
Kempner has
disclaimed beneficial ownership of all but
386,972 shares held in his name; 94,000 shares held by a trust
under which he is
the sole beneficiary, 494,329 of
the shares held by a trust of which he is a one-third
beneficiary, and 1,557,114
of the shares and warrants for an
additional 1,557,114 of the shares subject to the conversion of
promissory notes
held by Mr. Kempner or by trusts
under which Mr. Kempner is one of two trustees and a sole or one-
third
beneficiary; warrants for 212,960 shares
held by Mr. Kempner; and 310,581 of the warrants held by a trust
of which Mr.
Kempner is one of two trustees and
a one-third beneficiary.
5 Includes 521,104 shares and warrants for 521,104 shares held
by Mr.
Kimelman. Also includes 263,256 shares held
by Kimelman & Baird, LLC, and 100,000 shares held by his wife, of
which Mr.
Kimelman disclaims all but his
partnership interest in Kimelman & Baird, LLC. Also includes
650,031 shares and
warrants for an additional
650,031 shares subject to the conversion of $48,756 or promissory
notes held by
Mr. Kimelman.
6 Includes 1,505,945 shares and warrants for 967,016 shares
held by Mr.
Knafel, and 538,771 shares held in trust for
the benefit of Mr. Knafel's sons. Also includes 2,676,597 shares
and warrants
for an additional 2,676,597 shares
subject to the conversion of $200,760 of promissory notes held by
Mr. Knafel.
7 Includes 2,000 shares held by Mr. Monahan and 542,500 shares
which are
subject to options currently exercisable,
or exercisable within sixty days.
8 Includes 1,363,583 shares of common stock which are subject
to options
currently exercisable or exercisable within
60 days; unexpired warrants to purchase 3,755,360 shares of
common stock; 14,750
shares of common stock subject
to the redemption of 7,375 shares of redeemable preferred stock;
and 9,559,275
shares of common stock and
warrants to purchase an additional 9,559,275 shares of common
stock subject to
the conversion of $717,000 of
promissory notes held by Directors of the Company. Preferred
stock does not
include 7,375 shares held or
beneficially owned by a Director, which are subject to redemption
at the rate of
two shares of common stock for each
preferred share, and have therefore been included in shares of
common stock
beneficially owned by Directors at their
equivalent value of 14,750 shares of common stock. The
redeemable preferred
shares carry voting rights prior to
their redemption at two votes per share.
9 Includes 160,002 shares of common stock which represent
shares issued in
lieu of interest on the $1,500,000
debenture held by Dow, and 375,000 shares of common stock subject
to the
conversion of the $1,500,000 debenture.
The debenture carries no voting rights prior to its conversion.
Dow has waived
certain redemption rights as to the
187,500 shares of preferred stock, which it holds and which are
not redeemable
at the shareholder's option. These
limited redemption preferred shares carry no voting rights prior
to redemption.
<PAGE>
10 For the purposes of this table, total outstanding shares of
common stock
includes shares which are subject to rights
of acquisition within sixty days as follows: 1,898,917 shares of
common stock
which are subject to options currently
exercisable; unexpired warrants to purchase 4,290,400 shares of
common stock;
9,559,275 shares and warrants to
purchase an additional 9,559,275 shares of common stock which are
subject to the
conversion of $717,000 of
promissory notes held by Directors; 375,000 shares of common
stock which are
subject to the conversion of the
$1,500,000 debenture held by Dow; and 71,684 shares of common
stock which are
subject to the redemption of
35,842 shares of redeemable preferred stock outstanding, and
which shares have
not been included in total
outstanding preferred stock for the purposes of this table.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective February 15, 1991, the Company accepted subscriptions
in a private
placement to purchase 4,596,000
newly issued shares of Common Stock from accredited investors,
certain of whom
were Directors of the Company. The
shares were issued at a price of $.25 per share for an aggregate
consideration
of $1,149,000. The Company engaged the
investment-banking firm of Kimelman & Baird, LLC ("Firm") to act
as placement
agent for the offering. Michael G.
Kimelman, a general partner, and Anthony B. Low-Beer, at the time
an employee of
Kimelman & Baird, primarily directed
placement efforts. The Company agreed to pay the Firm, an
unrelated employee of
the Firm and Anthony B. Low-Beer an
aggregate placement fee in the form of a Warrant to purchase
800,000 shares of
Common Stock at an exercise price of $.25
per share exercisable over a period of four years ending February
14, 1995. Mr.
Kimelman also serves as a member of the
Board of Directors of the Company.
Effective June 26, 1992 the Company accepted subscriptions in a
private
placement to purchase 680,667 newly
issued shares of Common Stock from accredited investors, certain
of whom were
Directors of the Company. The shares and
warrants for an additional 680,667 shares were issued at a price
of $.75 per
share for an aggregate consideration of
$510,500. Kimelman & Baird, LLC acted as placement agent for the
offering and
received an aggregate placement fee in
the form of a Warrant to purchase 252,400 shares of Common Stock
at $.75 per
share exercisable over a period of four years
until June 26, 1996. The shares issued by the Company in this
offering were to
provide the Company with working capital
funds through the first quarter 1993.
On August 23, 1993 and on or about November 19, 1993, the Company
issued
Promissory Notes to certain directors
of the Company for an aggregate consideration of $108,250 and
$131,050,
respectively. The notes specify that interest will
be paid quarterly in arrears at Prime Rate. In addition, at any
time before
repayment, the value of the note may be converted
to common shares of the Company at $.48 per share and the Company
will provide a
warrant to purchase a like number of
shares at $.48 per share.
On February 10, 1994, the Company issued Promissory Notes to
certain directors
of the Company for an aggregate
consideration of $22,000. The notes specify that interest will be
paid quarterly
in arrears at Prime Rate. In addition, at any
time before repayment, the value of the notes may be converted to
common shares
of the Company at $.375 per share. In
the event of any such conversion, warrants to purchase a like
number of common
shares at a price of $.375 per share shall
be issued, which warrant may be exercised by the holder at any
time subsequent
to delivery.
On September 26, 1994, October 24, 1994, and November 28, 1994,
the Company
issued Promissory Notes to
certain directors of the Company for an aggregate consideration
of $50,000,
$50,000, and $48,250, respectively. The notes
specify that interest will be paid quarterly in arrears at Prime
Rate. In
addition, at any time before repayment, the value of
the notes may be converted to common shares of the Company at
$.25 per share and
the Company will provide warrants to
purchase a like number of common shares at a price of $.25 per
share. $1,750 of
this amount was not received until January,
1995.
On January 23, 1995, and March 7, 1995, the Company issued
additional promissory
notes to certain directors of
the Company for an aggregate consideration of $125,000. The
notes specify that
at any time prior to repayment the holder
has the right to convert the note to common stock of the Company
at $.1875 per
share for the note issued January 23, 1995
and at $.125 per share for the note issued March 7, 1995 and to
receive warrants
for an equivalent number of common shares
at $.1875 per share for the note issued January 23, 1995 and at
$.125 per share
for the note issued March 7, 1995.
<PAGE>
On November 16, 1995 and December 22, 1995, the Company issued
additional
promissory notes to certain directors of the Company for an
aggregate
consideration of $100,000. These notes specify that at any time
prior to
repayment the holder has the right to convert the note to common
stock of the
Company at $.05 per share and to receive a warrant for an
equivalent number of
common shares at $.05 per share. The promissory notes are due on
demand with
interest charged at the prime rate. A total of $55,320 was
received prior to
December 31, 1995, the remaining $44,680
was received during January 1996.
On December 14, 1995 the shareholders of the Company approved
cancellation of
promissory notes and warrants
issued to certain directors of the Company between August 25,
1993 and March 7,
1995 and the conversion of these notes
to common stock of the Company at $.125 per share and warrants to
purchase an
equal amount of common stock of the Company at $.125 per share,
which was the
fair market value of the common stock as quoted on April 3, 1995.
On February 9, 1996, and March 11, 1996, the Company issued
additional
promissory notes to certain directors of
the Company for an aggregate consideration of $140,000. The
notes specify that
at any time prior to repayment the holder
has the right to convert the note to common stock of the Company
at $.10 per
share for the note issued February 9, 1996 and
at $.09 per share for the note issued March 11, 1996 and to
receive warrants for
an equivalent number of common shares
at $.10 per share for the note issued February 9, 1996 and at
$.09 per share
for the note issued March 11, 1996.
On April 23, 1996, May 9, 1996 and June 7, 1996, the Company
issued Promissory
Notes to certain Directors of the Company for an aggregate
consideration of
$177,000. These notes specify that at any time prior to
repayment the holder
has the right to convert the note to common stock of the Company
at $.06 per
share for the notes issued April 23, 1996 and
May 9, 1996, and at $.05 for the note issued June 7, 1996, and to
receive
warrants for an equivalent number of common
shares at $.06 per share for the notes issued April 23, 1996 and
May 9, 1996 and
at $.05 per share for the note issued June
7, 1996.
On July 24, 1996 and September 24, 1996, the Company issued
Promissory Notes to
certain Directors of the
Company for an aggregate consideration of $160,000. These notes
specify that at
any time prior to repayment the holder
has the right to convert the note to common stock of the Company
at $.115 per
share for the note issued July 24, 1996 and
at $.125 per share for the note issued September 24, 1996, and to
receive
warrants for an equivalent number of common
shares at $.115 per share for the note issued July 24, 1996 and
$.125 per share
for the note issued September 24, 1996.
The unpaid portion of these Promissory Notes as of December 31,
1996 was $4,760.
On November 13, 1996 and December 11, 1996, the Company issued
Promissory Notes
to certain Directors of the
Company for an aggregate consideration of $140,000. These notes
specify that at
any time prior to repayment the holder
has the right to convert the note to common stock of the Company
at $.09 per
share for the notes dated November 13, 1996
and December 11, 1996, and to receive warrants for an equivalent
number of
common shares at $.09 per share for the note
issued November 13, 1996 and December 11, 1996. The unpaid
portion of these
Promissory Notes as of December 31,
1996 was $12,110.
On January 15, 1997 the Company issued Promissory Notes to
certain Directors of
the Company for an aggregate
consideration of $70,000. These notes specify that at any time
prior to
repayment the holder has the right to convert the note
to common stock of the Company at $.07 per share and to receive
warrants for an
equivalent number of common shares at
$.07 per share.
On February 24, 1997 the Company issued Promissory Notes to
certain Directors of
the Company for an aggregate
consideration of $100,000. These notes specify that at any time
prior to
repayment the holder has the right to convert the
note to common stock of the Company at $.11 per share and to
receive warrants
for an equivalent number of common shares
at $.11 per share.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K
A.1. The following financial statements relating to 1996 and 1995
are filed as
a part of this Report:
Independent Auditors' Report.
Balance Sheet as of December 31, 1996.
Statements of Operations for the years ended December 31, 1996
and December 31,
1995.
Statements of Stockholders' Deficit for the years ended December
31, 1996 and
December 31, 1995.
Statements of Cash Flows for the years ended December 31, 1996
and December 31,
1995.
Notes to Financial Statements.
A.1.a. The following financial statement schedules relating to
1996 and
1995 are filed as a part of this Report:
Schedule V. Property, Plant and Equipment.
Schedule VI. Accumulated Depreciation and Amortization of
Property, Plant and Equipment.
Schedule X. Supplementary Income Statement Information.
A.2. Exhibits filed herewith or incorporated by reference herein
are set forth
in the following table prepared in accordance
with Item 601 of Regulations S-K.
3.1 Articles of Incorporation of the Registrant, constituting
Exhibit 3.1 to
Registration Statement No. 33-5441
on Form S-1, and Amendment, constituting Exhibit 3.1 to
Registration Statement
No. 33-23266, are hereby
incorporated herein by reference.
3.2 Articles Supplementary of the Registrant filed September 28,
1987 and
October 26, 1987 constituting
Exhibit 3.2 to Registration Statement No. 33-18179 are hereby
incorporated
herein by reference.
3.3 By-Laws, constituting Exhibit 3.2 to the Registrant's
Registration
Statement No. 33-5441 on Form S-1, are
hereby incorporated herein by reference.
4.1 Form of Underwriter's Warrant, constituting Exhibit 4 to
Registration
Statement No. 33-5441 on Form S-1,
is hereby incorporated herein by reference.
4.2 Form of Preferred Stock Certificate constituting Exhibit 4.2
to
Registration Statement No. 33-18179 is
hereby incorporated herein by reference.
4.3 Form of Warrant Certificate and Warrant Agreement dated as
of May 31, 1988
between the Registrant and
Manufacturers Hanover Trust Company, constituting Exhibit 4.3 to
Registration
Statement No. 33-5441 on Form S-1, is hereby incorporated herein
by reference.
4.4 Form of Variable Rate Convertible Subordinated Debenture Due
2002 (Class
A), constituting Exhibit 4.4
to Registration Statement No. 33-5441 on Form S-1, is hereby
incorporated herein
by reference.
10.1 Agreement, effective as of September 16, 1985, between IGI
Biotechnology,
Inc. and Hercules Incorporated
constituting Exhibit 10.9 to the Registration Statement No. 33-
5441 on Form S-1
is hereby incorporated
herein by reference.
10.2 1986 Stock Option Plan of IGENE Biotechnology, Inc.
constituting Exhibit
(10)(15) to the Registrant's
Report on Form 10-K for the year ended December 31, 1986 is
hereby incorporated
herein by reference.
10.3 Letter Agreement dated October 15, 1987 between Hercules
Specialty
Chemicals Company and the
Registrant constituting Exhibit 10.17 to the Registrant Statement
No. 18179 on
Form S-1 is hereby incorporated herein by reference.
<PAGE>
10.4 Form of Conversion and Exchange Agreement used in May 1988
in connection
with the conversion and exchange by certain holders of shares of
Preferred Stock
for Common Stock and Warrants, constituting Exhibit 10.19 to
Registration
Statement No. 33-5441 on Form S-1, is hereby incorporated herein
by
reference.
10.5. Exchange Agreement made as of July 1, 1988 between the
Registrant and
Essex Industrial Chemicals, Inc.
with respect to the exchange of 187,500 shares of Preferred Stock
for a
Debenture, constituting Exhibit
10.6 Preferred Stockholders' Waiver Agreement dated May 5, 1988,
incorporated
by reference to the identically
numbered exhibit in Form S-1 Registration Statement No. 33-23266.
10.7 Form of Agreement between the Registrant and Certain
Investors in
Preferred Stock dated September 30,
1987, incorporated by reference to the identically numbered
exhibit in Amendment
No. 1 to Form S-1 Registration Statement No. 33-23266.
10.8 Agreement of Lease effected February 1, 1991 between
Columbia Warehouse
Limited Partnership and
IGENE Biotechnology, Inc. constituting exhibit 10.8 to the
registrant's report
on Form 10-K for the year
ended December 31, 1991 is hereby incorporated herein by
reference.
10.9 Letter of Intent as of March 26, 1993, between Burns Philp
Food Inc. and
IGENE Biotechnology, Inc.
constituting Exhibit 10.9 to the Registrant's Report on Form 10-
KSB for the year
ended December 31, 1992
is hereby incorporated herein by reference.
10.10 Technology Evaluation Agreement as of March 4, 1994
between the Food
Science Group of Pfizer Inc and
IGENE Biotechnology, Inc. constituting Exhibit 10.10 to the
Registrant's Report
on Form 10-KSB for the
year ended December 31, 1993 are hereby incorporated herein by
reference.
10.11 Letter Agreement executed May 11, 1995 between Archer
Daniels Midland and
IGENE Biotechnology,
Inc., along with November 11, 1995 Amendment, constituting
Exhibit 10.11 to the
Registrant's Report on
Form 10-KSB for the year ended December 31, 1995 is incorporated
herein by
reference.
10.12 Amendment to 1986 Stock Option Plan of IGENE
Biotechnology, Inc. having
been filed electronically on
October 16, 1995 within the Company's Preliminary Proxy Statement
and voted on
at the Company's December 14, 1995 Annual Meeting of Shareholders
is hereby
incorporated herein by reference.
10.13 Agreement of Lease effected December 15, 1995 between
Columbia Warehouse
Limited Partnership and
IGENE Biotechnology, Inc. constituting Exhibit 10.13 to the
registrant's report
on Form 10-KSB for the year
ended December 31, 1995 is incorporated herein by reference.
(b) No reports on Form 8-K were filed during the Fourth Quarter
of 1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
IGENE Biotechnology, Inc.
Columbia, MD
We have audited the financial statements of IGENE Biotechnology,
Inc. as listed
in response to A.1. of Item 13. In
connection with our audits of the financial statements, we also
have audited the
financial statement schedules as listed in
response to A.1a. of Item 13. These financial statements and
financial
statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these
financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing
standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial
statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting
the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and
significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in
all material respects, the financial position of IGENE
Biotechnology, Inc. as of
December 31, 1996 and 1995, and the results of its operations and
its cash flows
for the
years then ended in conformity with generally accepted accounting
principles.
Also in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial
statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
The accompanying financial statements and financial statement
schedules have
been prepared assuming that IGENE
Biotechnology, Inc. will continue as a going concern. As
discussed in note 13
to the financial statements, the Company's
recurring losses and limited capitalization raise substantial
doubt about the
Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in
note 13. The
financial statements and financial statement
schedules do not include any adjustments that might result from
the outcome of
this uncertainty.
BERENSON & COMPANY LLP
March 13, 1997
New York, NY
<PAGE>
<TABLE>
IGENE Biotechnology, Inc.
Statement of Operations Data
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Sales 43,091 25,563 113,166 68,516 165,060
Total
Revenues 66,573 274,978 363,349 69,089 170,654
Cost
of Sales 23,198 16,878 36,945 32,137 118,652
Research, Development
and Pilot Plant
Expenses 309,351 348,139 391,912 329,030 409,645
Other
Expenses 512,504 447,335 474,752 416,489 432,380
Net Loss (776,873) (503,156) (540,260) (708,567) (790,023)
Net Loss
Per Common
Share (1) (.04) ( .04) (.04) (.06) (.07)
Coverage Deficiency
of Fixed
Charges (2) 921,572 647,695 684,959 853,266 934,722
</TABLE>
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheet Data
<CAPTION>
As of December 31
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Cash
and Cash
Equivalents 41,339 8,326 19,529 65,897 128,118
Working
Capital
(Deficit) (983,816) (336,992) (645,815)(286,881) (26,918)
Total Assets 109,054 104,255 77,556 258,417 315,834
Long-term Debt 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Total
Liabilities 2,562,799 1,901,127 2,177,572 1,938,173 1,677,272
Redeemable
Preferred Stock 475,982 484,643 463,104 438,405 13,706
Stockholders'
Deficit (2,929,727)(2,281,515)(2,563,119)(2,118,161)(1,775,144)
Common
Shares
Outstanding 18,631,139 18,572,805 13,028,571 12,975,237 2,475,853
Preferred
Shares
Outstanding 223,342 225,842 226,092 226,092 226,092
1 Net loss per common share for the year ended December 31,
1992 is based on
12,084,190 shares. Net loss per common
share for each of the years in the four-year period ended
December 31, 1996 is
based on 12,769,011, 13,002,050, 13,694,343
and 18,604,171 weighted average shares, respectively. For
purposes of computing
net loss per common share, the amount
of net loss has been increased by dividends declared and
cumulative undeclared
dividends in arrears on preferred stock.
2 Earnings are not adequate to cover fixed charges. The
"coverage
deficiency of fixed charges" for each year is equal
to the net loss for the year plus dividends on preferred stock.
</TABLE>
<TABLE>
IGENE Biotechnology, Inc.
Balance Sheet
December 31
<CAPTION>
1996
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,339
Accounts receivable 9,996
Supplies 6,126
Prepaid Expenses 4,652
Due from stockholders (note 6) 16,870
TOTAL CURRENT ASSETS 78,983
OTHER ASSETS
Property and equipment, net (note 3) 19,471
Security deposits 10,600
TOTAL ASSETS $ 109,054
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and
accrued expenses (note 4) $ 300,799
Debenture interest payable (note 5) 45,000
Promissory notes payable (note 6) 717,000
TOTAL CURRENT LIABILITIES 1,062,799
OTHER LIABILITIES
Variable rate subordinated
debenture (note 5) 1,500,000
TOTAL LIABILITIES 2,562,799
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
REDEEMABLE PREFERRED STOCK
Carrying amount of redeemable preferred stock,
8% cumulative, Convertible, voting, Series A,
$.01 par value per share. Stated Value $13.28
per share. Authorized 920,000 shares; issued
35,842 shares. Redemption amount $475,982
(notes 5, 7 and 8) 475,982
STOCKHOLDERS' DEFICIT (notes 7 and 8)
Preferred stock -- $.01 par value per share.
8% cumulative, Convertible, voting, Series A.
Authorized and issued 187,500 shares
(aggregate involuntary liquidation value
of $2,490,000) 1,875
Common stock -- $.01 par value per share.
Authorized 35,000,000 shares;
Issued 18,631,139 shares 186,311
Additional paid-in capital 17,971,220
Deficit (21,089,133)
TOTAL STOCKHOLDERS' DEFICIT (2,929,727)
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 109,054
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<TABLE>
IGENE Biotechnology, Inc.
Statements of Operations
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Sales 43,091 25,563
Cost of sales 23,198 16,878
Gross profit 19,893 8,685
Technology licensing income (note 14) -- 225,000
Technology services income (note 14) 23,482 24,415
Net sales 43,375 258,100
Selling, general and administrative expenses:
Marketing and selling 5,438 12,813
Research, development and pilot plant 309,351 348,139
General and administrative 331,211 303,998
Total selling, general
and administrative expenses 646,000 664,950
Operating loss (602,625) (406,850)
Other income (expenses):
Forgiveness of Debt (note 6) -- 33,395
Investment income 1,607 527
Other income (expense) (4,743) 296
Interest expense (171,112) (130,524)
Net Loss (776,873) (503,156)
Deficit at beginning of year (20,312,260)(19,809,104)
Deficit at end of year $(21,089,133) $(20,312,260)
Net loss per common share (note 9) $(.04) $(.04)
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
<CAPTION>
Redeemable
Preferred Stock Preferred Stock Common Stock
(Shares/Amount)(Shares/Amount)(Shares/Amount)
<S> <C> <C> <C>
Balance at
December 31,
1994 38,592/$463,104 187,500/$1,875 13,028,571/$130,285
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture
(note 5) --- --- 53,334/$533
Cumulative undeclared
dividends on redeemable
preferred
stock 24,539 --- ---
Issuance of 1,200,000 shares of common stock
pursuant to direct purchase of shares by
certain directors of the Company
(note 8) --- --- 1,200,000/$12,000
Issuance of 4,290,400 shares of common stock
on conversion of promissory
notes --- --- 4,290,400/$42,905
Conversion of redeemable preferred stock
into
common stock (250)/$(3,000) --- 500/$5
Net loss
for 1995 --- --- ---
Balance at
December 31,
1995 38,342/$484,643 187,500/$1,875 18,572,805/$185,728
Issuance of
53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture
(note 5) --- --- 53,334/$533
Cumulative undeclared dividends on redeemable
preferred
stock 22,939 --- ---
Conversion of redeemable preferred stock
into
common stock (2,500)/$(31,600) --- 5,000/$50
Net loss
for 1996 --- --- ---
Balance at
December 31,
1996 35,842/$475,982 187,500/$1,875 8,631,139/$186,311
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Stockholders' Deficit
(Continued)
<CAPTION>
Additional Total Stockholder's
Paid-In Capital Deficit Deficit
<S> <C> <C> <C>
Balance at
December 31,
1994 17,113,824 (19,809,104) (2,563,120)
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture
(note 5) 119,467 --- 120,000
Cumulative undeclared dividends on redeemable
preferred stock (24,539) --- (24,539)
Issuance of 1,200,000 shares of common stock
pursuant to direct purchase of shares by
certain directors of
the Company
(note 8) 138,000 --- 150,000
Issuance of 4,290,400 shares of common stock
on conversion of promissory
notes 493,395 --- 536,300
Conversion of redeemable preferred stock
into
common stock 2,995 --- 3,000
Net loss
for 1995 --- (503,156) (503,156)
Balance at
December 31,
1995 $17,843,142 $(20,312,260) $(2,281,515)
Issuance of 53,334 shares of common stock as
payment of interest on variable rate
subordinate debenture
(note 5) 119,467 --- 120,000
Cumulative undeclared dividends on redeemable
preferred stock(22,939) --- (22,939)
Conversion of redeemable preferred stock
into common
stock 31,550 --- 31,600
Net loss
for 1996 --- (776,873) (776,873)
Balance at
December 31,
1996 $17,971,220 $(21,089,133) $(2,929,727)
The accompanying notes are an integral part of the financial
statements.
</TABLE>
<TABLE>
IGENE Biotechnology, Inc.
Statements of Cash Flows
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(776,873) ($503,156)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 6,261 8,048
Loss on sale of assets 4,743 ---
Interest on debenture paid
in shares of
common stock 120,000 120,000
Decrease
(increase) in:
Accounts receivable 1,133 (339)
Pepaid expenses,
supplies and deposits (10,778) 1,438
Increase (decrease) in:
Accounts payable and
other accrued expenses 44,672 33,105
Net cash used in operating
activities (610,842) (340,904)
Cash flows from investing activities:
Capital expenditures (955) (2,369)
Net cash used in investing
activities (955) (2,369)
Cash flows from financing activities:
Proceeds from issuance
of common stock -- 150,000
Issuance of promissory notes 644,810 182,070
Net cash provided by
financing activities 644,810 332,070
Net increase (decrease) in cash 33,013 (11,203)
Cash and cash equivalents -
beginning of the year 8,326 19,529
Cash and cash equivalents -
end of the year 41,339 8,326
Supplementary disclosure and cash flow information:
Cash paid during the
year for interest $ --- $ ---
Cash paid during the
year for income taxes --- ---
Non-cash investing and financing activities:
During 1996 and 1995, the Company issued 53,334 shares of common
stock in each
year in payment of interest on the
variable rate subordinated debenture. If paid in cash, the
interest would have
been payable at 8% during 1996 and 1995,
or $120,000 per year. Shares may be issued in lieu of cash under
the debenture
agreement at the higher of $2.25 per share
or market price per share. The stock was issued and related
interest was paid
in 1996 and 1995 at $2.25 per share, or
$120,000 in each year. (See also note 5)
During 1996 and 1995 the Company recorded dividends in arrears on
8% redeemable
preferred stock at $.64 per share
aggregating $22,939 and $24,539, respectively in each year which
has been
removed from paid-in capital and included in the
carrying value of the redeemable preferred stock. (See also note
7)
During 1995 the Company issued 4,290,400 shares of common stock
pursuant to the
conversion of $536,300 of promissory
notes held by certain directors of the Company. (See also note 8)
During 1995 the Company issued promissory notes to certain
directors of the
Company in the face amount of $226,750. As
of December 31, 1995 $182,070 had been received in cash proceeds
by the Company.
$44,680 remained due from certain
directors of the Company on December 31, 1995, which was received
during 1996.
(See also note 8)
During 1996 the Company issued promissory notes to certain
directors of the
Company in the face amount of $617,000. As
of December 31, 1996 $600,130 had been received in cash proceeds
by the Company.
$16,870 remained due from certain
directors of the Company as of December 31, 1996. (See also note
8)
The accompanying notes are an integral part of the financial
statements.
</TABLE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(1) Nature of Business
The Company was incorporated under the laws of the State of
Maryland on October
27, 1981 as "Industrial
Genetics, Inc." The Company changed its name to "IGI
Biotechnology, Inc." on
August 17, 1983 and to "IGENE
Biotechnology, Inc." on April 14, 1986. The Company is located
in Columbia,
Maryland and is engaged in the business
of industrial microbiology and related biotechnologies.
(2) Summary of Significant Accounting Policies
Cash and cash equivalents
For purposes of the financial statements, cash equivalents have
been combined
with cash. The Company
considers cash equivalents to be short-term, highly liquid
investments that have
maturities of less than three
months. These include interest bearing money market accounts.
Research and development costs
For financial reporting purposes, research, development and pilot
plant scale-up
costs are charged to expense
when incurred.
Depreciation
Depreciation of property and equipment is provided under the
straight-line
method over the useful lives of
the respective assets.
Estimates
The preparation of financial statements in conformity with
generally accepted
accounting principles require
management to make estimates and assumptions that affect the
reported amounts of
assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial
statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could
differ from those estimates.
Fair value of financial instruments
The carrying amounts of cash and cash equivalents approximate
fair value because
of the short maturity of
those instruments. The carrying amount of lone-term debt
approximates fair
value because of similar current rates
at which the Company could borrow funds with consistent remaining
maturities.
Sales Returns
The Company records sales returns in the period in which the
product is
returned, rather than estimating
future returns of current sales, since they are expected to be
immaterial in
amount.
Interest on Variable Rate Subordinated Debenture
The Company records interest on its variable rate subordinated
debenture (see
also note 6) at a level rate
of 8% through October 1, 1996; rather than at the fair-market
value of shares
which have been issued in lieu of cash
payments of interest. This is an estimated average rate based on
the Company's
plan to continue (as it has since
October 1, 1989) to pay interest on the debenture by issuing
shares of common
stock at the higher of $2.25 per share
or the current market value of the Company's shares, as allowed
under the terms
of the debenture. If the market
value of the Company's stock remains below $2.25 per share
(during the period
from October 1989 through December
1995 its highest price was $1.25) the Company can continue to
issue stock in
lieu of cash payments at $2.25 per
share. Effective October 1, 1996 the Company will begin
recording interest on
its variable rate subordinated
debenture at a level rate of 12%; rather than at the fair-market
value of
shares, which have been issued in lieu
of cash payments of interest.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
Accounting for stock based compensation
The Company applies APB Opinion 25 in accounting for employee
stock option plans
(note 8). Accordingly, no
compensation cost has been recognized in 1996 and 1995. Had
compensation cost
been determined on the basis of FASB
Statement 123, the following changes would have resulted:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss:
As reported $ (776,873) $ (503,156)
Pro forma (781,189) (503,156)
Net loss per common share:
As reported $ (.04) $ (.04)
Pro forma (.04) (.04)
The fair value of compensation was computed using an option-
pricing model which
took into account the
following factors as of the grant date:
* The exercise price and expected life of the option.
* The current price of the stock and its expected volatility.
* Expected dividends, if any.
* The risk-free interest rate for the expected term of the option
using Treasury
Note rates with a remaining term equal to the expected life of
the options.
</TABLE>
(3) Property and Equipment
Property and equipment are stated at cost and are summarized as
follows:
Laboratory equipment and fixtures $ 70,060
Pilot plant equipment and fixtures 8,200
Machinery and equipment 57,979
Office furniture and fixtures 33,526
169,765
Less accumulated depreciation 150,294
$ 19,471
(4) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
Accounts payable $ 251,050
Audit fees and payroll taxes 13,600
Accrued interest, promissory notes 36,149
$ 300,799
(5) Variable Rate Subordinated Debenture
In July 1988, the Company and a principal holder of the Company's
redeemable
preferred stock agreed to
exchange 187,500 shares of the Company's 8% cumulative
convertible preferred
stock, Series A for a $1,500,000
variable rate convertible subordinated debenture due 2002, Class
A.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
The debenture bears interest at a rate of 8% per annum through
September 30,
1996 and thereafter at a rate
of 12% per annum. Interest was payable in cash through October
1, 1989.
Thereafter, the debenture agreement
provides that at the option and at the discretion of the Company,
interest may
be paid in shares of the Company's
common stock at the greater of $2.25 per share or the average
market value per
share. During 1996 and 1995, the
Company issued 106,668 of its common stock as payment of interest
on the
debenture. The debenture is convertible
into common stock of the Company at any time at the option of the
holder at an
initial rate of $4 per share of
common stock. The debenture is redeemable at the option of the
Company at any
interest payment date at par value
plus accrued interest. Upon maturity of the debenture, the
Company, at its
option, may repay the remaining
principal in shares of 8% cumulative convertible preferred stock,
Series B at a
rate of $8 per preferred share.
(6) Promissory Notes Payable
On August 23, and November 19, 1993, the Company issued
promissory notes to
certain directors of the Company
for an aggregate consideration of $239,300. The notes specify
that at any time
prior to repayment the holder has
the right to convert the note to common stock of the Company at
$.48 per share
and to receive a warrant for an
equivalent number of common shares at $.48 per share. The
promissory notes were
due on demand with interest charged
at the prime rate.
On February 10, 1994, and September 26, October 24, 1994 and
November 28, 1994,
the Company issued additional
promissory notes to certain directors of the Company for an
aggregate
consideration of $170,250. The notes specify
that at any time prior to repayment the holder has the right to
convert the note
to common stock of the Company at
$.375 per share for the note issued February 10, 1994 and at $.25
per share for
all other notes and to receive
warrants for an equivalent number of common shares at $.375 per
share for the
note issued February 10, 1994 and at
$.25 per share for all other notes. These promissory notes were
also due on
demand with interest charged at the
prime rate.
On January 23, 1995, and March 7, 1995, the Company issued
additional promissory
notes to certain directors
of the Company for an aggregate consideration of $125,000. The
notes specify
that at any time prior to repayment
the holder has the right to convert the note to common stock of
the Company at
$.1875 per share for the note issued
January 23, 1995 and at $.125 per share for the note issued March
7, 1995 and to
receive warrants for an equivalent
number of common shares at $.1875 per share for the note issued
January 23, 1995
and at $.125 per share for the note
issued March 7, 1995.
On November 16, 1995, and December 22, 1995, the Company issued
additional
promissory notes to certain
directors of the Company for an aggregate consideration of
$100,000. These
notes specify that at any time prior
to repayment the holder has the right to convert the note to
common stock of the
Company at $.05 per share and to
receive a warrant for an equivalent number of common shares at
$.05 per share.
The promissory notes are due on
demand with interest charged at the prime rate. As of December
31, 1995 $55,320
was received by the Company. The
remaining $44,680 was received in January, 1996.
On December 14, 1995 the shareholders of the Company approved
cancellation of
Promissory Notes and Warrants
issued to certain Directors of the Company between August 25,
1993 and March 7,
1995 and the conversion of these
notes to common stock of the Company at $.125 per share and
warrants to purchase
an equal amount of common stock
of the Company at $.125 per share, which was the fair market
value of the common
stock as quoted on April 3, 1995.
Interest accrued of $33,395 was forgiven by the shareholders.
On February 9, 1996, and March 11, 1996, the Company issued
additional
promissory notes to certain directors
of the Company for an aggregate consideration of $140,000. The
notes specify
that at any time prior to repayment
the holder has the right to convert the note to common stock of
the Company at
$.10 per share for the note issued
February 9, 1996 and at $.09 per share for the note issued March
11, 1996 and to
receive warrants for an equivalent
number of common shares at $.10 per share for the note issued
February 9, 1996
and at $.09 per share for the note
issued March 11, 1996.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
On April 23, 1996, May 9, 1996 and June 7, 1996, the Company
issued Promissory
Notes to certain Directors
of the Company for an aggregate consideration of $177,000. These
notes specify
that at any time prior to repayment
the holder has the right to convert the note to common stock of
the Company at
$.06 per share for the notes issued
April 23, 1996 and May 9, 1996, and at $.05 for the note issued
June 7, 1996,
and to receive warrants for an
equivalent number of common shares at $.06 per share for the
notes issued April
23, 1996 and May 9, 1996 and at $.05
per share for the note issued June 7, 1996.
On July 24, 1996 and September 24, 1996, the Company issued
Promissory Notes to
certain Directors of the
Company for an aggregate consideration of $160,000. These notes
specify that at
any time prior to repayment the
holder has the right to convert the note to common stock of the
Company at $.115
per share for the note issued July
24, 1996 and at $.125 per share for the note issued September 24,
1996, and to
receive warrants for an equivalent
number of common shares at $.115 per share for the note issued
July 24, 1996 and
$.125 per share for the note issued
September 24, 1996. As of December 31, 1996 the unpaid portion
of these
Promissory Notes was $4,760.
On November 13, 1996 and December 11, 1996, the Company issued
Promissory Notes
to certain Directors of the
Company for an aggregate consideration of $140,000. These notes
specify that at
any time prior to repayment the
holder has the right to convert the note to common stock of the
Company at $.09
per share for the notes dated
November 13, 1996 and December 11, 1996, and to receive warrants
for an
equivalent number of common shares at $.09
per share for the note issued November 13, 1996 and December 11,
1996. As of
December 31, 1996 the unpaid portion
of these Promissory Notes was $12,110.
(7) Redeemable Preferred Stock
Each share of redeemable preferred stock is entitled to vote on
all matters
requiring shareholder approval
as one class with holders of common stock, except that each share
of redeemable
preferred stock is entitled to two
votes and each share of common stock is entitled to one vote.
Redeemable preferred stock is convertible at the option of the
holder at any
time, unless previously
redeemed, into shares of the Company's common stock at the rate
of two shares of
common stock for each share of
preferred stock (equivalent to a conversion price of $4.00 per
common share),
subject to adjustment under certain
conditions.
Shares of redeemable preferred stock are redeemable for cash in
whole or in part
at the option of the Company
at any time at the stated value plus accrued and unpaid dividends
to the
redemption date. Dividends are cumulative
and payable quarterly on January 1, April 1, July 1 and October
1, since January
1, 1988. See note 5 relating to
exchange of redeemable preferred stock and note 8 relating to
conversion of
redeemable preferred stock and waiver
of redemption privileges. Mandatory redemption is required by
October 2002. As
of December 31, 1996, cumulative
dividends in arrears totaled $189,246 ($5.28 per share) and were
included in
carrying value of redeemable preferred
stock. See Note 5 relating to exchange of redeemable preferred
stock and Note 8
relating to conversion of
redeemable preferred stock and waiver of redemption privileges.
(8) Stockholders' Equity
Common Stock
In January 1987, the Board of Directors approved the 1986 Stock
Option Plan
("Plan"). In August 1990, the
shareholders approved an increase in the number of shares
issuable pursuant to
options granted under the Plan.
Under the Plan options to acquire up to 978,850 shares of the
Company's common
stock may be issued to certain
directors, officers and employees. Options granted under the
Plan are
exercisable in installments of twenty percent
each year beginning on the first anniversary of the date when
such options are
granted and expire not later than
ten years from the date of grant. On January 22, 1987, the Board
of Directors
approved the granting, under the
Plan, of options to purchase 72,750 shares of the Company's
common stock at
$5.40 per share to 23 full-time
employees of the Company. The option price represented a
discount from the
market price at the date of grant. The
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
total amount of such discount was accounted for as compensation
expense and
recognized over the period in which
employees were providing the related services. In May 1989 the
Compensation
Committee of the Board of Directors
approved the reduction of the exercise price from $5.40 to $1.00
per share of
the aforementioned options. In
addition, the Compensation Committee approved the granting of
options to
purchase an additional 146,350 shares at
an exercise price of $1.00 per share pursuant to the Plan. In
May 1990, the
Compensation Committee of the Board
of Directors approved the granting of options to purchase an
additional 560,250
shares at an exercise price of $.10
per share pursuant to the Plan. In January 1991, options to
purchase 250,000
shares of common stock of the Company
at $.25 per share were granted to two officers and one key
employee of the
Company. In January 1992, options to
purchase 350,000 shares of common stock of the Company at $.625
per share were
granted to one officer and one key
employee of the Company. In April 1993, options to purchase
50,000 shares of
common stock of the Company at $1.00
per share were granted to one key employee of the Company. The
options granted
in May 1989, May 1990, January 1991,
January 1992, and April 1993 were at an exercise price in excess
or equal to the
current market price and,
accordingly, no additional compensation expense was recognized.
Prior to 1993,
no options were exercised under the
Plan. In 1993 options to purchase 87,000 shares of common stock
at $.10 per
share and 20,000 shares of common stock
at $.25 per share were exercised pursuant to the Plan. On March
17, 1994 the
Board of Directors approved an
increase from 978,850 to 1,200,000 in the number of shares
issuable pursuant to
options granted under the plan which
was approved by stockholders at the Company's 1994 Annual
Meeting. On December
16, 1995 an increase from 1,200,000
to 2,000,000 in the number of shares issuable pursuant to options
granted under
the plan which was approved by
stockholders at the Company's 1995 Annual Meeting.
On January 11, 1996, warrants to purchase 1,418,502 shares of
common stock of
the Company at $.05 were
granted to the CEO of the Company, and options to purchase
800,000 shares to two
officers of the Company at $.05
per common share. One-third of the shares were to be vested
immediately and
one-third on each anniversary of the
grant. The Compensation Committee also recommended the
conversion of previously
granted employee stock options
issued between March 9, 1987 to March 9, 1995 to options at $.05
per share,
which was the fair market value at that
time. The Board of Directors approved this recommendation on
April 17, 1996.
Upon termination of the CEO in
January 1997, only 472,834 of shares granted to the CEO were
vested and are
exercisable until January 7, 1998.
In May and November 1988, holders of 314,092 shares of redeemable
preferred
stock converted those shares into
628,184 shares of the Company's common stock and received
warrants to purchase
314,092 shares of common stock at
a rate of $6.00 per share which expired on July 30, 1993. During
1990, holders
of 13,500 shares of redeemable
preferred stock converted those shares to 27,000 shares of the
Company's common
stock. During 1991 holders of 5,125
shares of redeemable preferred stock converted those shares to
10,250 shares of
the Company's common stock. During
1993 and 1994 no shares of redeemable preferred stock were
converted to shares
of the Company's common stock.
In February 1991, the Company sold 4,596,000 shares of common
stock and received
net proceeds of $1,109,000.
Also in February, 1991, the Company issued warrants to purchase
800,000 shares
of common stock at $.25 per share
to a stockholder controlled company for acting as placement
agent.
In June 1992, the Company sold 680,667 shares of common stock and
received net
proceeds of $503,693. Also
in June, 1992, the Company issued warrants to purchase 252,400
shares of common
stock at $.75 per share to a
stockholder controlled Company for acting as placement agent. In
addition,
680,667 warrants to purchase common
stock at $.75 per share were issued to other qualified investors
as part of the
private placement.
On March 25, 1993 the Company issued 33,334 shares of common
stock at $.75 upon
execution of a Letter of
Intent with Burns Philp Food Inc. to enter into a Technology
License Agreement.
Upon execution of a Technology
License Option Agreement on April 16, 1993, Burns Philp purchased
166,666 newly
issued shares of common stock at
$.75 per share, and an additional 62,500 shares at $.48 per share
on July 13,
1993. On October 13 the Company
issued 76,550 shares of common stock at $1.00 per share as part
of the
termination of the Agreement with Burns
Philp.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
At December 31, 1994, 86,746 shares of authorized but unissued
common stock were
reserved for exercise at
$6.64 per share pursuant to a stock purchase warrant granted to
the underwriter
in connection with the Company's
initial public offering, 978,850 shares of authorized but
unissued common stock
were reserved for exercise pursuant
to the 1986 Stock Option Plan, 452,184 shares of authorized but
unissued common
stock were reserved for issuance
upon conversion of the Company's outstanding preferred stock,
314,092 shares of
authorized but unissued common stock
were reserved for issuance upon exercise at $6.00 per share of
stock purchase
warrants issued to preferred
stockholders who converted to common stock in 1988, 800,000
shares of authorized
but unissued common stock were
reserved for issuance upon reinvestment of interest on the
variable rate
subordinated debenture and 375,000 shares
of authorized but unissued common stock were reserved for
issuance upon
conversion of the variable rate subordinated
debenture.
On August 15, 1995, the Company sold 1,200,000 shares of common
stock to certain
directors of the Company
at $.125 per share and received net proceeds of $150,000.
On December 14, 1995, the Company issued 4,290,400 shares of
common stock in
lieu of retired Promissory Notes
and Warrants issued to certain directors of the Company from
August 25, 1993
through March 7, 1995. Issued along
with the common stock were warrants to purchase an equal amount
of common stock
of the Company at $.125 per share,
which was the fair market value of the common stock as quoted on
April 3, 1995
by the National Quotation Bureau,
which warrants shall expire on April 3, 1998.
The following table summarizes options and warrants issued,
outstanding and
exercisable:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Issued 7,508,652 5,642,550
Outstanding 7,403,652 5,537,550
Exercisable 5,822,651 5,237,550
</TABLE>
Preferred Stock
In May 1988, the Company and a holder of its redeemable preferred
stock entered
into an agreement under which
the mandatory redemption rights referred to in note 5 were waived
as to 187,500
shares of the preferred stock.
These shares are subject to redemption at the option of the
Company under
provisions governing the preferred stock
which permit the Company to redeem such stock at any time. Under
these
arrangements, the amounts attributable to
shares of the preferred stock as to which mandatory redemption
rights were
waived are recorded and combined in total
with the stockholders' equity accounts.
On January 23, 1996 a holder of preferred stock converted 2,500
shares of
preferred stock into 5,000 share
of common stock of the Company.
At December 31, 1996, cumulative dividends in arrears totaled
$990,000 ($5.28
per share) and were included
in the aggregate involuntary liquidation value of the preferred
stock.
At December 31, 1996, 187,500 shares of authorized but unissued
preferred stock
were reserved for issuance
upon maturity of the variable rate subordinated debenture.
(9) Net Loss Per Common Share
Net loss per common share for 1996 and 1995 is based on
18,604,171 and
13,694,343 weighted average shares,
respectively. For purposes of computing net loss per common
share, the amount
of net loss has been increased by
dividends declared and cumulative undeclared dividends in arrears
on preferred
stock.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
(10) Commitments
The Company is obligated for office and laboratory facilities and
other rentals
under separate operating
lease agreements, which expire in 2001. The basic annual rentals
are expected
to be between $57,000 - $59,000 under
such leases. Annual rent expense relating to the leases for the
years ended
December 31, 1996 and 1995 approximated
$68,000 and $83,000, respectively.
Exclusive worldwide rights to manufacture and sell one of the
products developed
by the Company were granted
to Hercules Incorporated ("Hercules"), in exchange for an initial
license fee of
$500,000 pursuant to a licensing
agreement dated as of September 16, 1985. Hercules did not
produce commercially
any quantities of the product and
by an agreement dated October 15, 1987, the Company and Hercules
agreed to
terminate the license agreement.
Pursuant to termination agreements negotiated between the
parties, the Company
paid Hercules $25,000 for termination
of the license and will not refund the $500,000 initial license
fee paid by
Hercules. If the Company commercializes
the product, the Company will pay Hercules up to an additional
$600,000 from
revenues from the sale or licensing
of the product.
(11) Contingencies
On September 24, 1982, the Company and McKesson Corporation
formed a joint
venture for the purpose of
developing, manufacturing and selling certain whey-based
products. On June 26,
1984, McKesson Corporation assigned
to the Company all of its rights, titles and interests in the
joint venture in
consideration of a cash payment for
the joint venture's inventory and a commitment to pay an
additional amount of
approximately $500,000, payable
without interest in five equal annual installments, commencing
after the first
fiscal year in which the Company
attains pre-tax profits, as defined, or at least $1 million.
Because the
payment is dependent upon the Company's
attaining profitable operations in the future, no liability
therefore has been
reflected in the accompanying balance
sheet.
In May 1995, the Company signed a non-exclusive licensing
agreement with Archer
Daniels Midland Company
("ADM") for the manufacture and sale of AstaXin(r). On February
29, 1996 ADM
informed the Company that it had decided
not to utilize the Technology and requested that IGENE return
approximately
$250,000 in payments under the License
Agreement. IGENE maintains that ADM is not entitled to the
payments and that
additional monies are owed to IGENE.
It is management's contention that it is not probable that this
dispute will
result in an unfavorable outcome.
Accordingly, no liability has been reflected in the accompanying
balance sheet.
(12) Income Taxes
At December 31, 1996 and 1995, the Company has federal and state
net operating
loss carry-forwards of
approximately $20,100,000 and $19,300,000, respectively, that
expire from 1997
to 2011. The recorded deferred tax
asset, representing the expected benefit from the future
realization of the net
operating losses, net of the
valuation allowance, was $-0- for both years.
The sources of the deferred tax asset is approximately as
follows:
1996
Net operating loss carry-forward benefit $ 8,200,000
Valuation allowance (8,200,000)
Deferred tax asset $ -
(13) Uncertainty
The Company has incurred net losses in each year of its
existence, aggregating
approximately $21,100,000 from
inception to December 31, 1996 and its liabilities and redeemable
preferred
stock exceeded its assets by
approximately $2,900,000 at that date. These factors indicate
that the Company
will not be able to continue in
existence unless it is able to raise additional capital and
attain profitable
operations.
<PAGE>
IGENE Biotechnology, Inc.
Notes to Financial Statements
(continued)
Management has instituted a program of significant cost
reductions, deferred all
except immediately necessary
capital expenditures, and suspended payment of dividends on the
Company's
preferred stock payments. The
implementation of these measures to conserve working capital
together with the
successful marketing and licensing
of the Company's products, which management hopes to achieve, may
permit the
Company to attract additional capital
and enable it to continue.
The Company is actively seeking and is in discussion with a
potential
manufacturer of its AstaXin(r)
technology. The Company believes this technology to be highly
marketable and is
hopeful that an income-producing
technology licensing agreement could be executed during 1997 for
this product.
To increase working capital, the Company plans to issue
additional stock to
officers and directors and to
encourage holders of outstanding warrants to exercise these
rights. The Company
will also encourage the holders
of convertible promissory notes to convert them into common
stock. To meet
short-term cash needs the Company issued
additional promissory notes to officers and directors. (see also
note 15)
(14) Technology Licensing Income
On May 11, 1995 the Company and Archer-Daniels-Midland Company
signed a non-
exclusive licensing agreement
for AstaXin(r). The Agreement provided for an initial payment of
$200,000 and
royalties based on sales. In addition,
the Company received $23,482 and $24,415 in 1996 and 1995,
respectively, for
technology services pertaining to the
Agreement. The Company also received payment of $25,000 in
December, 1995 under
the terms of the Agreement. On
February 29, 1996 Archer-Daniels-Midland Company terminated its
Licensing
Agreement with the Company (See Note 11).
(15) Subsequent Events
Effective January 1, 1997 the Company initiated a SIMPLE
retirement plan. All
employees who received at
least $5,000 of compensation for the preceding year are eligible
to participate
in the plan. The Company makes a
non-elective contribution for each participating employee equal
to 2% of each
such employee's compensation.
On January 15, 1997 the Company issued Promissory Notes to
certain Directors of
the Company for an aggregate
consideration of $70,000. These notes specify that at any time
prior to
repayment the holder has the right to
convert the note to common stock of the Company at $.07 per share
and to receive
warrants for an equivalent number
of common shares at $.07 per share.
On February 24, 1997 the Company issued Promissory Notes to
certain Directors of
the Company for an aggregate
consideration of $100,000. These notes specify that at any time
prior to
repayment the holder has the right to
convert the note to common stock of the Company at $.11 per share
and to receive
warrants for an equivalent number
of common shares at $.11 per share.
<PAGE>
<TABLE>
Schedule V
IGENE Biotechnology, Inc.
Property, Plant and Equipment
<CAPTION>
Balance at Balance
Beginning Additions at end
Classification of period at cost Retirements of period
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Laboratory equipment
and fixtures $ 85,092 $ --- $ 15,032 $ 70,060
Pilot plant
equipment and
fixtures 56,862 955 49,615 8,200
Machinery
and equipment 101,683 --- 43,704 57,979
Office furniture
and fixtures 42,864 --- 9,338 33,526
$ 286,501 $ 955 $117,689 $169,765
</TABLE>
<TABLE>
Schedule VI
Accumulated Depreciation and Amortization
of Property, Plant and Equipment
<CAPTION>
Balance at Depreci- Balance
beginning ation at end
Classification of period Expense Retirements of period
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Laboratory equipment
and fixtures $ 73,091 $ 2,000 $ 15,032 $ 60,059
Pilot plant equipment
and fixtures 56,863 67 49,614 7,314
Machinery and equipment 84,234 4,122 38,961 49,395
Office furniture
and fixtures 42,792 72 9,338 33,526
$ 256,980 $ 6,261$ 112,946$ 150,294
</TABLE>
<TABLE>
Schedule X
Supplementary Income Statement Information
<CAPTION>
1996 1995
<S> <C> <C>
Maintenance and repairs ...... $ 27,174 $ 35,849
Taxes, other than
payroll and income taxes...... 18,193 15,267
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange
Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly
authorized, in Columbia, Howard County, State of
Maryland on April 15, 1997.
IGENE Biotechnology, Inc.
Date: April 15, 1997 By: /S/ Stephen F. Hiu,
President
Pursuant to the requirements of the Securities Act of 1933, this
report is to be
signed below by the following persons in the
capacities indicated.
Signature Title
Date
/s/ Joseph C. Abeles Director April 15, 1997
(Joseph C. Abeles)
/s/ John A. Cenerazzo Director April 15, 1997
(John A.
Cenerazzo)
/s/ Stephen F. Hiu Director,
(Stephen F. Hiu) President, April 15, 1997
Secretary, and Treasurer
Chief Financial Officer,
Chief Accounting Officer
/s/ Thomas L. Kempner Vice Chairman
(Thomas L. Kempner) of Board April 15, 1997
/s/ Michael G. Kimelman Chairman
(Michael G. Kimelman) of the Board April 15, 1997
of Directors
/s/ Sidney R. Knafel Director April 15, 1997
(Sidney R. Knafel)
/s/ Patrick F. Monahan Director April 15, 1997
(Patrick
F. Monahan)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 41,339
<SECURITIES> 0
<RECEIVABLES> 9,996
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 78,983
<PP&E> 19,471
<DEPRECIATION> 0
<TOTAL-ASSETS> 109,054
<CURRENT-LIABILITIES> 1,062,799
<BONDS> 1,500,000
<COMMON> 186,311
475,982
1,875
<OTHER-SE> (3,117,913)
<TOTAL-LIABILITY-AND-EQUITY> 109,054
<SALES> 43,091
<TOTAL-REVENUES> 66,573
<CGS> 23,198
<TOTAL-COSTS> 23,198
<OTHER-EXPENSES> 4,743
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,112
<INCOME-PRETAX> (776,873)
<INCOME-TAX> 0
<INCOME-CONTINUING> (776,873)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (776,873)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
